USA: Federal authorities shut down – budget impasse continues

Last week, both the House of Representatives and the Senate were actually meant to agree to a short-term interim budget for the fiscal year, although the latter actually started on 1 October. Whereas in the House of Representatives the Republicans achieved the requisite majority for the currently valid spending plan, in the Senate they fell far short of a majority. For this reason, since Saturday numerous public facilities such as museums have been closed. As of today, the administrative shutdown will become even more apparent. Labour exchanges and other authorities will not open, as several hundred thousand federal employees have been put on unpaid leave. The main reason for the renewed escalation in the dispute over the federal budget is the totally contrary opinion of the two parties on immigration policy. Furthermore, with regard to this issue in particular, the US president has repeatedly added oil to the fire – and not just over the past few days.

It is hardly possible to speculate about how long the impasse in the Senate is going to last. No agreement was reached over the weekend and it is questionable when there will be a compromise. When it comes to immigration and illegal citizens in particular, the positions between the parties have very much hardened. The current bone of contention, with which the Democrats seemingly wish to curry favour with their voters, is the approval of legal protection from deportation for what are known as “Dreamers”. These are approx. 700,000 people who entered the USA illegally as minors and are now of student age. The danger of their being deported has risen considerably since President Trump has been in office. His predecessor Barack Obama tried in vain to guarantee the Dreamers, who have spent most of their life in the US, the right to permanent residency.

The latest escalation at the political level should not stifle the economy, which is currently in fine fettle. However, should the impasse last several weeks, the economic climate could well begin to look gloomier. Over the past few weeks, Trump’s business-friendly course, which is reflected not only in a considerable cut in corporate tax, has brightened the mood in industrial companies to previously unseen levels.

However, last year’s buoyant consumer sentiment has dimmed slightly of late. On the one hand, this could be due to wage rises, which despite the good job market are still only moderate, while on the other hand the uncertainty about the actual impact of the tax reform is playing a role. Should there be a slowdown of momentum in private consumer spending, then this would have a negative effect on economic growth as a whole this year.

The latest development in the US budget dispute marks a new low, even if in the past few years the budget situation has repeatedly been a political football between the two parties. This is the first shutdown where the president is able to rely on a majority in both houses, meaning he should really be able to govern at will. The majority in the Senate is admittedly extremely slender, since it consists of only two votes, which would anyway not be enough for the 60 per cent of votes needed to approve the federal budget. At any rate, Democratic Senators would also have to agree to renewed interim financing, which incidentally would be the fourth such injection since the beginning of the fiscal year that would only run until 8 February anyway, and will under no circumstances provide a long-term solution.

After the last shutdown in 2013, which was caused by the Republicans and lasted 16 days, it initially looked as if this type of behaviour had tarnished the reputation of the Republican deputies. Ultimately, though, the opposite was the case: In the subsequent mid-term elections in autumn 2014 the Republicans won a majority not only in the House of Representatives, but in the Senate as well. It is certainly conceivable that with its current obstructive policy the Democratic Party is hoping for similar success in the mid-term elections on 6 November. Only if they are successful, will they be able to prevent further legislative changes under President Trump such as the recent tax reform.

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